What’s Warren Up To?

Try as they might to put on a brave face, Kraft management cannot be pleased that Warren Buffett chose to go public with his opposition to the company’s plan to issue up to 370 million shares to facilitate the purchase of Cadbury .

Yes, Buffett’s opposition is actually proving helpful to Kraft’s bid, given its stock is going up due to the perception that Mr. Buffett’s opposition will limit Kraft’s use of its shares and Cadbury’s is declining due to worries that his pressure will forestall a higher bid from Kraft.

And yes, it’s true that Buffett did not say he’s opposed to a purchase of Cadbury, only the free hand being given Kraft to change its offer for Cadbury in any way it wishes from the transaction presented to shareholders in the proxy Kraft recently filed.

Buffett has also long made a case for stronger corporate governance and this gives him another chance to further that cause and argue that Kraft’s stock is cheap.

Still, it can’t be a good day for Kraft CEO Irene Rosenfeld when she wakes up to find out her largest shareholder (Berkshire has a 9.4% stake in Kraft) is issuing a press release questioning the strategy for a career betting deal. This is not something that Buffett typically does. It’s hard to imagine Buffett has not spoken with Rosenfeld about his concerns and so one must assume that he wasn’t fully satisfied with her answers.

Buffett and others at Berkshire are not elaborating on why the release was issued now, as opposed to after it is made clear to both Cadbury and Kraft shareholders what the final bid for Cadbury will look like (we’ll know that by January 19th which is the deadline for Kraft under U.K. takeover law) and therefore how much stock will be issued.

Perhaps Buffett acted now because he may not have a vote later. People close to this deal tell me that if it so desires Kraft could increase the cash portion of its bid (without endangering its investment grade credit rating), while decreasing the stock portion, so that it would not be issuing more than 20% of its outstanding shares and therefore no longer be required to hold a shareholder vote. In two weeks we’ll find out.